Online Commerce Sites Revamp, and Wait

Back to back during the last two sessions at the second day of JP Morgan’s technology conference in Boston were two online commerce companies that shared a similar theme: Both are “revamping” their products, hoping profit growth will follow in years to come.

Mercado Libre (MELI) is considered the eBay (EBAY) of Latin America, providing an online marketplace for listing and transacting of goods in Argentina, Venezuela, and other countries. Chief executive Marcos Galperin told the audience that the company has, for example, recalibrated its listing and selling fees in the last 18 months to be more sensitive to the underlying value of the different types of goods sold.

When asked if the company’s “take rate” would be increasing, as measured by the gross value of merchandise transacted, divided by the company’s gross profit, he explained “it would be a mistake to increase the take rate too high, too fast.” In other words, get people selling, and wait to milk it till later. Still, analysts are projecting profit for Mercado to rise 113% this year and 83% next year, on 64% and 44% increases in sales. Not bad.

The company’s main concerns are to keep free classified ads from luring away consumers, and to try and lure more bricks-and-mortar retailers. Also touched on in the session was “Pago,” which is Mercado’s answer to eBay’s PayPal payment system. Currently Pago is only used in about 12% of transactions, which is far below the 50% or so that PayPal gets used for on eBay. Galperin says the product has been made more user-friendly by removing the requirement that consumers pay for the cost of escrow to secure their payments; with that added expense gone, he thinks Pago can pick up.

When asked if Mercado’s operating margin might rise from 25% or so of sales currently to be closer to eBay’s 35%, Galperin said that it can do so in the next three to five years. The company has been spending to revamp its site, but those expenses can be ratcheted down, and selling, general & administrative costs “have a lot of leverage,” he said.

Back in the US, Move (MOVE) claims to be the largest listings site for home sales. 2008 is “a very tough environment for real estate,” said Move president Lorna Borenstein. Gee, you think?

But amidst the housing gloom, Move is expecting to increase sales next year by 11% and to go from a loss of 1 cent per share to profit of as much as 9 cents, according to analysts. The company is hoping that as the housing market improves, the roughly $9 billion that real estate agents and brokers spend in advertising annually will not go back to newspapers but rather will permanently migrate online. (Move gets paid for listings, with no revenue dependent on the actual sale of a home.)

To do that, the company has been spending more on its direct sales force to talk with brokers and to talk with high-end home sellers. Roping in brokers, of which the company has about 3,500 as customers at present, can have a bigger payoff in the end, said Borenstein, because each broker is a link to thousands of agents, and those agents can in turn be up-sold to more expensive listings services — things like additional hi-res photographs of a property.

As a consequence, however, “Selling, general and administrative costs are way out of line with the revenue base,” conceded chief executive W. Michael Long, who has been with the company for six years now. “We need to re-align expenses, and we will fix things,” he assured the crowd.